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Pfizer (PFEFree Pfizer Stock Report), the world's largest drugmaker and a Dow-30 component, reported fourth-quarter earnings of $0.86 a share, versus $0.19 in the comparable period of 2011. The strong year-over-year improvement was largely attributable a $4.8 billion gain from the sale of its nutrition business at the end of November. Adjusted earnings, which excludes these items and other one-time charges, came in at $0.47 a share, versus $0.49 in 2011. Upon the announcement, shares of Pfizer edged up more than 2% in early morning trading—making a 52-week high in the process.

Overall, it was a solid quarter for Pfizer, as performance exceeded expectations. Although generic deterioration on Lipitor continued to weigh on the top line (total revenue declined 7% to $15.1 billion), the fallout was slightly less than we had anticipated. Effective cost management and strong sales growth from the Emerging Markets (+17%) and Consumer Healthcare (+16%) segments also helped drive earnings.

While Lipitor continues to dominate the headlines, improved contributions from newer products, and positive news from the pipeline, lead us to believe better days are ahead for Pfizer. Key drugs, such as Lyrica, Celebrex, and Prevnar 13, all reported double-digit growth during the fourth quarter, helping to partially mitigate a 71% decline in worldwide Lipitor sales. Moreover, the company recently introduced two new products with the potential to be multi-billion-dollar-a-year blockbusters. Pfizer's Xelijanz pill, for the treatment of rheumatoid arthritis, was approved in November and is the first of a new type of medicine for the disease. Eliquis, a blood-thinner that Pfizer co-developed with Bristol-Myers Squibb, gained regulatory approval in December and is expected to be widely available in the U.S. in the first quarter of 2013.

For 2013, management released its GAAP earnings guidance range of $1.50-$1.65 a share, and adjusted earnings of $2.20-$2.30 a share. The guidance reflects revenue projections of $56.2 billion-$58.2 billion, SI&A expenses of $15.6 billion-$16.6 billion, R&D expenses of $6.5 billion-$7.0 billion, and an effective tax rate of approximately 28%. For the time being, we are leaving our GAAP earnings estimate unchanged at $1.70 a share.

All told, our investment thesis remains the same from our January 11th report. Pfizer is a strong company with solid fundamentals and sizable shares in most markets. Although patent expirations on several key products remain a near-term concern, we believe the drugmaker should be able to effectively weather the storm given its impressive track record. Encouragingly, the company has reported significant pipeline progress in recent months and, in our view, it is only a matter of time before these products are developed into meaningful top-line contributors. For investors seeking an attractive and well-defined total return play with relative stability, good-yielding Pfizer's stock has an above-average dividend yield and a top rank for Safety (1). The company's Financial Strength (A+) is also outstanding.

About The Company:Pfizer is a major producer of pharmaceuticals, hospital products, consumer products, and animal health lines. Important product names include Norvasc (cardiovascular); Zoloft (antidepressant); Zithromax (antibiotic); Lipitor (cholesterol); Aricept (Alzheimer’s); Cardura (cardiovascular); Diflucan (antifungal); Zyrtec (antihistamine); Viagra (impotence); and Celebrex (rheumatoid arthritis and osteoarthritis). International sales accounted for about 60% of total sales in 2011.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.